The Reserve Bank of India (RBI) lifted regulatory constraints on three banks on Tuesday after they received a capital injection from the government.
The RBI had imposed lending curbs on 11 state banks over the past few years after their capital ratios fell below minimum requirements and bad loans surged.
Last month, RBI removed three of these banks from its so-called prompt corrective action (PCA) list and has now removed three more.
The three banks are state-controlled Allahabad Bank and Corporation Bank and privately held Dhanlaxmi Bank.
The two state banks were taken off the list by the RBI under its new Governor Shaktikanta Das following increased capital ratios and loan-loss provisioning.
"This has shored up their capital funds and also increased their loan loss provision to ensure that the PCA parameters were complied with," the RBI said referring to the government's latest capital injection.
The RBI said the banks had made structural and systemic improvements to maintain these numbers.
The RBI took Dhanlaxmi Bank off the list because it was not in breach of any of the risk thresholds.
The government said last week, it would inject 482.39 billion rupees ($6.78 billion) into 12 state lenders as part of its recapitalisation programme.
"RBI will continuously monitor the performance of these banks under various parameters," the RBI said.
There are 21 publicly listed state-run banks in India that provide about two-third of total loans. With nearly half of them under a PCA plan and the rest cautious due to a record $150 billion in bad debt, the government has been keen to relax the curbs to boost their ability to lend.